Question

Increase in the income of the buyers (in case of an inferior good) will cause________________.

• A. fall in equilibrium price and quantity.
• B. rise in equilibrium price and quantity.
• C. fall in equilibrium price and increase in equilibrium quantity
• D. increase in equilibrium price and fall in equilibrium quantity

Answer 1

The correct option is A fall in equilibrium price and quantity.

In case of inferior goods, the income affect is negative I.e. income and demand is inversely related. When the price of the goods decreases the consumer will purchase less of that commodity and use the extra purchasing power to purchase superior quality of goods. Hence, with the rise in real income/purchasing power the equilibrium quantity as well as the price will reduce.